Guarantee secured capital for young company's African order

The small and newly established Danish company DMS Africa won an important order for buildings to the British government’s representation in South Sudan. A working capital guarantee from EKF secured the necessary credit from the bank and DMS Africa could fill the order for new housing and offices for British diplomats.

For a young company with few financial assets such as ours, the guarantee from EKF has been essential.

Flemming Pedersen, Executive Director, DMS Africa Ltd.

​The Danish company DMS Africa specialises in prefabricated modular structures that can be combined in numerous ways as needed.

The company was established in 2009 with headquarters in Vodskov, North Jutland and offices in Kenya and South Sudan. DMS Africa has 15 employees in total of which 12 are in Africa.

”There are many logistics challenges when building in an African country with poor road conditions and difficult border crossings. A local presence is therefore important”, says Flemming Pedersen, Executive Director of DMS Africa.

In 2010, DMS Africa won the contract for a 300 m2 office building and four diplomat homes in South Sudan ahead of 44 competing companies. The customer was the British government. So DMS Africa had brought home the contract, however, they found it difficult to secure the funds to finance the project.

”The banks have become so cautious that even with a physical order from a reliable customer, the bank would not lend us the money,” says Flemming Pedersen, Executive Director of DMS Africa.

​In early summer of 2010, DMS Africa contacted EKF. To obtain the liquidity necessary to fill the order in South Sudan, the company needed a credit of approximately DKK 2 million for a short period of three months.

As mentioned, DMS Africa was, however, a newly established company who had not even presented their first annual accounts. This made it very difficult for EKF to assess the company’s creditworthiness in the usual way.On the one hand, DMS Africa was a completely blank page. On the other hand, the company could show an attractive order to a solid buyer.

​For this reason EKF found that the right solution would be a working capital guarantee directly linked to the specific order.

In other words, EKF was ready to provide a working capital guarantee for a credit from the bank if the money was spent specifically on filling the order in South Sudan. Moreover, all running payments from the British government are set aside to pay off the credit.

In June 2010, EKF approved a working capital guarantee to DMS Africa at the cost of 6.3 per cent for a period of three months. This is the highest premium in EKF’s premium model but it was a prerequisite for the execution of the order by the newly established company. With the working capital guarantee DMS Africa obtained the credit necessary for the project from their Danish bank and completed the building project as planned.

But the good news did not end here. In July 2011, South Sudan declared its independence and the need for British diplomats in the country increased. DMS Africa was thus asked to add a first floor extension. This time the financing was a completely different and easier story.

In the meantime, DMS Africa had presented their first annual accounts, with a profit even, allowing the bank itself to issue a working capital guarantee of nearly DKK 1 million without the involvement of EKF. This time the premium was only 3.8 per cent.

”For a young company with few financial assets such as ours, the guarantee from EKF has been essential”, says Flemming Pedersen, Executive Director of DMS Africa.